Department of Higher Education and Training 2016/17 Annual Report, with Auditor-General + DPME input

Meeting report

Auditor General South Africa on Budgetary Review and Recommendations Briefing

Mr Joshua Baganzi, Senior Manager: Auditor General of South Africa (AGSA), said that the presentation would highlight the audit outcomes for the Department of Higher Education and Training (DHET), 21 Sector Education and Training Authorities (SETAs) and other entities such as the Technical and Vocational Education and Training (TVET) colleges. Universities would be touched on too, but were not audited by the Department. They would also touch on the work done in respect of skills development and TVET infrastructure, through performance audits. He advised the Committee that there was a detailed document which had not arrived yet, which would also elaborate on the presentation. His presentation would be limited the DHET and the 28 entities, whilst his colleague would touch on the universities and TVETs.

Mid presentation, Mr Baganzi’s cell phone abruptly rang, instantly disturbing the proceedings. He expressed his sincerest apologies.

Dr B Bozolli (DA) objected to the AG’s presentation style, and requested that he skip through the introductory slides. She expressed her frustration at the fact that the detailed briefing notes were circulated and made available to the Committee only during the meeting, and not the day before. She unapologetically suggested that the meeting be halted, as it would not be the first time, and that maybe “they would learn for next time” if the meeting was stopped.

Ms J Kilian (ANC) also supported the proposal that the introductory slides be skipped if the Members of the Committee do not object. She agreed that the late briefing notes showed a lack of professionalism, but the meeting needed to continue as planned.

The Chairperson adamantly declared that the meeting would continue as planned, even though the lateness of the detailed briefing notes was unacceptable.

Mr Baganzi apologised profusely and promised to provide clarity when referring to the document. His department was under the impression that the notes had been made available to the Committee already, and said there had been miscommunication on the matter.

He continued to present on the audit outcomes of the portfolio over the past four years. For 2016-17, there were no qualified opinions among the 28 auditees, which was an improvement on its own. Furthermore, 10 auditees (36%) were unqualified with no findings (same as 2015-16) and 18 auditees (64%) were unqualified with findings. These were good improvements over four years, as in 2013-14, five auditees (19%) were unqualified with no findings, 19 auditees (70%) were unqualified with findings and there were three auditees (11%) with qualified opinions.

Three auditees had improved from unqualified with findings to no findings, namely the Education, Training and Development Practices (ETDP)SETA, the National Institute for the Humanities and Social Sciences (NIHSS), and the Quality Council for Trades and Occupations (QCTO). Equally, three auditees had improved from qualified opinions to unqualified with findings, namely the Mining Qualifications Authority (MQA), the Public Sector Education and Training Authority (PSETA), and the Wholesale and Retail Sector Education and Training Authority (W&RSETA). Three auditees had regressed from unqualified with no findings, to ‘with findings,’ namely the Finance and Accounting Services SETA (FASSET), the SERVICESETA and the Culture, Arts, Tourism, Hospitality and Sport (CATHS)SETA.

19 auditees had remained unchanged, namely, the BANKSETA, the Construction Education and Training Authority (CETA), the Chemical Industries Education and Training Authority (CHIETA), the Fiber Processing and Manufacturing (FP&M)SETA, Health and Welfare SETA (HWSETA), Media Information and Communications Technologies (MICT), and the Insurance Sector Education and Training Authority (INSETA). These all remained in the unqualified, with no findings, category.

The Department of Higher Education and Training (DHET), the Agricultural (AGRI)SETA, the Energy and Water (EW)SETA, the Food and Beverages (FOODBEV) SETA, the Local Government (LG)SETA, the Manufacturing, Engineering and Related (MER)SETA, the Safety and Security (SAS)SETA, the Transport (T)ETA, the National Student Financial Aid Scheme (NSFAS), the National Skills Fund (NSF), the Council on Higher Education (CHE) and the SA Qualifications Authority (SAQA) all remained in the unqualified, with findings, category.

The Department’s unqualified with findings report was related to supply chain management (SCM) and predetermined objectives, which was due to insufficient evidence to support what was in the annual report, such as certification rates and completeness. The material misstatements needed to be fixed to ensure that the chances of improvement increased.

Management and delivery on key programmes-spending, performance and reporting focused primarily on three departmental programmes -- university education, TVET and skills development programmes. In programme three, university education spent 100% of the budget, had no material misstatements and achieved 12 of the 15 targets. In programme four, the TVET programme had seven various material indicators which required intervention, and had achieved one of the 12 targets. Programme five, skills development, had a qualified indicator on the work-based opportunities, as they had understated the amounts, and four of the five targets were achieved. Programme 6: Community Education and Training (CET), also had qualified indicators which related to headcount of enrolments at all CET colleges and certification rates in formal CET qualifications. No targets were achieved.

The findings on annual performance reports remained consistent with the prior year, as seven entities had findings with performance reports, and 21 had no findings. The findings on compliance with key legislation did not deviate much from 2015-16 to 2016-17 too, as 15 entities had findings in 2015-16, compared to 14 entities in the following year. Equally so, 13 entities had no findings in 2015-16, and had moved by one, to 14 entities for 2016-17.

Mr C Kekana’s (ANC) cell phone rang but was quickly stopped.

There had been no unauthorised expenditure over the past three years, from 2014-15. However, the fruitless and wasteful expenditure had increased drastically, from R2 million for 2015-16, to R25 million for 2016-17. This alarming increase could be attributed to FASSET, as there had been one double payment to service providers worth R22 million. The other R3 million was attributed to SASSETA for interest on late payments. I

Irregular expenditure also increased significantly, from R569 million to R904 million for the current year. Different entities contributed to this large increment. A breakdown was provided in the detailed document. The biggest contributor was EWSETA for SCM payments. Another was W&RSETA, who contributed around R114 million. The NSF also contributed R170 million. PSETA and SERVICESSETA equally contributed R80 million respectively.

It was evident that the most common finding on SCM was, amongst others, the preference point system not being applied, or incorrectly applied, at 35%. The other biggest contributor was competitive bidding not invited at 26%. Other findings were suppliers’ tax affairs not in order, inadequate contract performance measures and monitoring.

Fraud and consequence management for the entities was also monitored, as the previous years’ unauthorised, irregular, fruitless and wasteful expenditure had been reported for investigation. For 2015-16, 100% of the reported expenditures were investigated, which was commendable. However, for 2016-17, only 6% was investigated, meaning 94% was not investigated. The 94% was attributed to the W&RSETA, as there were 628 incidences which had occurred.

The status of internal control measures of the entities was also audited. 28% of the entities had concerns over leadership, which meant that they needed to strengthen their policies and procedures. Financial and performance management referred to the lack of monthly bank reconciliations taking place and other financial misstatements which recurred. Governance issues were at 11%, which was attributed to those entities which did not have proper risk assessments and assurance providers in place.

Mr Baganzi concluded his presentation.

AGSA on audit outcomes for TVET colleges and universities

Mr Sibongile Manzi, Senior Manager: AGSA said that the AGSA audited 50 auditees, including all the TVET colleges, which were not required to report on their performances against performance objectives. Therefore, the principles of unauthorised, irregular and wasteful and fruitless expenditure were not reported on for the TVET colleges as they were not required to do so, or follow the rules established by the Public Finance Management Act (PFMA). He added that universities were not audited by the AGSA, so information on these institutions would be very limited.

In 2013, only 15 colleges had been audited by the AGSA. Of those, 53% (eight) received disclaimers of opinions, 40% (six) received qualified with findings opinions, and only 7% (one) received an unqualified with findings opinion. Gradually, the audit outcomes of the TVET colleges had improved. To attest to this, in 2016 when 50 auditees were audited, 18% (nine) were unqualified with no findings, 24% (12) were unqualified with findings, 28% (14) were qualified with findings, 8% (four) were adverse with findings and 12% (six) were disclaimed with findings. So, 42% of the colleges avoided aqualified opinion in 2016, whereas in 2013, only 7% did. This showed a vast improvement.

14 TVET colleges had improved in 2016 from the previous year, namely, Esayidi, Port Elizabeth, Majuba and Nkangala, which moved from unqualified with findings, to unqualified with no findings opinions. Central JHB, Lovedale and West Coast moved from qualified reports to unqualified with findings. King Hintsa, Letaba, WestCol, Goldfields, Ingwe and KSD moved from adverse reports to qualified reports. Sekhukhane moved from a disclaimed opinion to an adverse opinion with findings. 23 auditees remained unchanged in their respective opinions. Eight auditees regressed, most notably Capricorn and Waterberg, which had regressed alarmingly from unqualified with no findings reports to receiving adverse, with findings, reports. East Cape Midlands, NC Rural, Tshwane North, Tshwane South and Sedibeng all had outstanding reports as of 31 August 2017 for various reasons.

Financial statement qualification areas for the colleges varied from current assets (22), non-current assets(17), liabilities(16), revenue (14), expenditure(13) and other disclosure items(11).

The status of internal control measures that needed improvement in the colleges was comprised of leadership (45% of concern) and 36% that required intervention; financial and performance management (41% of concern) and 48% that required intervention; governance (47% of concern) and 33% that required intervention.

The root causes of the current audit outcomes of the TVET colleges included a slow response to improving key controls and addressing risk areas, inadequate consequences for poor performance and transgressions, and instability or vacancies in key positions. The three causes were ranked at 58%, 22% and 28% respectively.

Universities were not audited by the AGSA. Most of the universities received unqualified opinions with no findings. However, there were two universities that had received qualified opinions with findings – the University of Fort Hare and the Walter Sisulu University -- due to irregularity in non-current assets. Audit outcomes of various institutions had not yet been received, these being the Durban University of Technology, Mangosuthu University of Technology, North West University, University of Limpopo and University of Pretoria.

AGSA on Skills Development Sector Audit

Dr Takalani Rambau, Senior Manager: Performance Audit, AGSA, an education specialist, presented on the skills development sector audit and its focus areas. To ensure that the skills development interventions of the DHET were implemented and were working efficiently and effectively, the AGSA identified four key focus areas: research, partnership, project management, and monitoring and evaluation. Research was included due to the nature of the work done by the SETAs with supply and demand, to ensure that extensive research was done on the markets’ need to ensure adequate supply was provided. Partnerships were also focused on, to ensure that SETAs entered into innovative partnerships instead of traditional ones, such as enhancing the competence of college lecturers, and projects with other SETAs or programmes to assist learners with job placements. Project management was also imperative to show whether the SETAs had reviewed progress reports and had conducted site visits for funded projects. Lastly, monitoring and evaluation was key to reflect if the SETA had kept skills development records in a system that would enable measuring the effectiveness of the projects.

The sector audit findings on research for demand-driven skills development for 2015-16 showed that most SETAs used the sector skills plans chapter to report on the research done, which created a reliability and validity problem as it essentially relied on employers conducting the research and identifying the skills demand. The DHET had established the Labour Market Intelligent Project to conduct research, but most of the research was executed by the Human Sciences Research Council (HSRC) and not the SETAs. Furthermore, some SETAs had human and financial capital to conduct the research internally, while others could not afford to do so, which forced them to outsource this duty as they were struggling on their own. Evidently, only four SETAs had elevated their research to the DHET research repository, which meant that most of the work done was not being recorded in a central database.

The AGSA, in terms of the monitoring and evaluation of skills development, looked at whether or not the SETAs had frameworks and policies in place for gathering the data analysis. However, there was not one framework for SETAs to share their monitoring conclusions, which was a problem, as all had different frameworks. The DHET had been made aware of this, to try to come up with solutions. Site visits also used different mechanisms to create data, and the corrective measures suggested were not done, as usually a checklist system was used. Furthermore, not all SETAs had done impact assessments to assess their interventions.

For 2016-17, AGSA had identified key pillars for the skills development sector audit to ensure effectiveness. These were the prioritisation of skills for rural development, an emphasis on Professional, Vocational, Technical and Academic Learning (PIVOTAL) programmes, revitalisation of TVET colleges through improving the competence of TVET lecturers, training incentives for cooperatives, small, medium and micro enterprises (SMMEs), non-governmental organisations (NGOs) and trade unions, and the implementation of cross and inter-sectoral skills needs.

With regard to improving the competence of TVET lecturers, a problem existed as almost a thousand (1 000) lecturers were 60 years old, or above. Seeing that the retirement age was 65, this was a huge problem. In terms of partnerships, the NSF and NSFAS had signed an agreement in 2002 which needed to be revised by the DHET in light of new developments. Also, in terms of NSFAS, financial aid data management should be configured to capture and reproduce data in a way that would inform the achievement and effectiveness of the National Skills Development Strategy (NSDS). Also, the recent R14 million incorrect transfer to a student, which was reported months after the event, showed poor data capturing. These challenges would need to be resolved in the foreseeable future.

In terms of infrastructure, the AGSA had audited three Further Education and Training (FET) campuses in 2015-16, including Nkandla A (Kwa-Zulu Natal), Bhambanana (Kwa-Zulu Natal) and Thabazimbi (Limpopo). Many shortcomings were identified in the three colleges audited, including but not limited to planning design deficiencies, such as scope of work changes, accessibility to campus facilities for the disabled such as catering walkways, wheelchair ramps and lifts where necessary, which were not available. During 2016-17, a follow up audit had been conducted on the same campuses and it was immediately evident that the DHET had not yet addressed all the issues raised in the prior year. On top of the already existing issues, additional issues were identified, including but not limited to delays in the completion of the projects, ranging from 15 to 21 months.

Recommendations had been provided to the DHET, such as the full scope of the project should be determined before commencement of the project to avoid additions to the scope during construction time.

Discussion

Ms Kilian noted that there was no consequence management in the TVET colleges and SETAs, so what could the DHET do and what measures could be implemented to ensure that the institutions stayed on track? She asked the reason for the universities not meeting financial deadlines, as they were beneficiaries of public funds. And if they did provide the statements, would the AGSA be provided with these only, or would the Department too? Why were NSFAS operations not monitored or audited by the AGSA? The AGSA needed to discover and track the movements of the students in terms of their progression through these education institutions, whether it be universities, TVETs or skills programmes. The recommendations made to the Department were commendable. For the SCM transgressions, corruption crept in when these entities were repeat offenders, so if they could not account, could they be charged for theft or fraud?

Mr Kekana asked for the audit jargon in the introductory slides to be explained, as it was imperative to be able to comprehend and understand the audit reports. He asked what recovery measures were in place for the erroneous double payments which had been made, or had nothing been done? With regard to the skills and SETAs, the needs and demands of the economy needed to be met to ensure that the country’s economy strengthened. Why were universities not audited by the AGSA?

Mr A van der Westhuizen (DA) pointed out that there had been a regression in the unqualified reports with no findings, from 17 to 9 entities only, so why had the AG said there was in fact an improvement? TVET colleges were not required by law to comply with the PFMA rules, but the Department did indeed communicate with the colleges that they should comply and abide by the PFMA rules, so why did they not comply, and why was this accepted by the AG?

Dr Bozzoli asked what would happen if the Department’s liabilities continued to grow and they continue to overspend. The TVETs with unsatisfactory audit outcomes and the ones which had not submitted their financial statements should report and account to the Committee, as their financial soundness or instability rather negatively affected the youth of this country. How could the institutions which had vast irregular expenditure -- in the millions -- receive sound audit outcomes?

Ms M Nkadimeng (ANC) said that the irregular expenditure had increased significantly, from R569 million to R904 million for the current year. The difference in the increase was very alarming, especially seeing that it was for irregular expenditure. What steps would be implemented to ensure a decrease of these amounts?

Mr N Khubisa (NFP) said that the Department’s delay in the release of certificates was a huge problem, as the recent graduates suffered afterwards when they went looking for employment. Also, should the TVETs which had not provided financial statements not be punished by reduced government funds, since they had failed to effectively account?

DPME assessment of DHET performance

Dr Thabo Mabogoane, Outcome Facilitator: Basic Education and Skills, Department of Performance Management and Evaluation (DPME), said the National Development Plan (NDP) goals were to eradicate absolute poverty and reduce inequality, and to reduce the unemployment rate to 6% by creating 11 million more jobs by 2030. To implement the NDP goals, the Medium Term Strategic Framework (MTSF) had been established, which runs every five years and entails 14 priority outcomes. The skills created needed to ensure the capability of South Africans. Education had an intrinsic and instrumental value in creating societies that were better able to respond to the challenges of the 21st century.

Post-School Education and Training (PSET) was central in education and the economy, as it responded to the skills needs of all sectors, supported quality learning and teaching in the entire education system and created research for knowledge and knowledge systems and technology transfers.

Post-school education training was very important and needed, but primary education was important too, as the students started to be groomed then. Millions of students start off in grade 1, but in matric, only a relative few received bachelor passes -- 1.2 million started grade 1, but only 121 000 achieved bachelor passes. Even if they reached post-school institutions, a majority dropped out before graduating due to the problems they faced there. Therefore, it had to be ensured that the TVETs were equipped with the skills needed to ensure students succeed, as universities needed to be supplemented by them.

In terms of the MTSF, the headcount had been decreased to ensure that the TVETs remained capable of taking in students to ensure their success. The certification rates were not being met, as the target for 2019 was 65%, but currently for 2016-17 it was 32.6%. The goal for the number of qualifying National Certificate Vocational (NCV) and Report 191 TVET students obtaining financial assistance annually had been met, as it had been 200 000, and currently it was 225 444. However, because of the inadequate data systems, the data for whether the students graduated in record time had not been recorded. There had been progress in the number of research masters graduates yearly, so there was hope of meeting the goal of 34 000 in 2019. Artisan learners’ trade test pass percentages at INDLELA were steadily reaching the goal of 65%, as it sat on 53% currently. The DHET still needed to ensure that TVET colleges be built, as the goal remained at three, but only one had been built. The number of qualified artisans also needs to be increased.

The target of funding 205 000 university students through NSFAS had been met for the 2016 academic year, by 255 213 in comparison with the previous years. The achievement had been declining since 2014 (186 150), to 178961 in 2015. There was a consistent achievement in awarding of bursaries to PhD students at 3 454 in 2016, improving from 2 845 of 2014. This ensured that the country was on the right path of knowledge richness.

However, there were challenges in the TVET systems, such as financial constraints, and the building and operationalisation of the remaining six new campuses. Furthermore, the TVET curriculum quality of lecturer qualification and declining infrastructure needed to be improved by the DHET to produce the calibre of students expected by industry. The DHET needed to address the issues around #FeesMustFall, to ensure that years run smoothly and the standard of qualifications remains good.

Discussion

Mr Kekana said South Africa must train its people to compete on the African continent. The problem with the TVETs was that they should be more technical and not theoretical. For instance, at nursing colleges, nurses were trained by nurses. The same system needed to be implemented in the TVETs to ensure success. If students wanted more theory, they should go to universities with lecturers. Why was the target 25 000 artisans instead of 30 000?

Mr Khubisa said that the country needed to produce more artisans, as there was an intrinsic need for them. However, the training of artisans had many problems, including the fact that the infrastructure was dilapidated and the trainers themselves were not qualified to train the people. These issues needed to be solved. Basic education needed more focus, as the children had to be exposed to education from a young age from grade R, and concrete foundations had to be established. Research needed to be improved. Supervisors must be heavily qualified and competent to do supervise.

Ms Kilian was concerned about the Department playing into the narrative of free education. What was the problem that existed in the systems, when SAPS could not find the people working in the public sector to pay back the NSFAS loans? Foundation programmes need to be focused on more as the PSET departments received money, and they received students from the early education. What was the role of the DPME in improving efficiencies in the government systems?

The Chairperson thanked the DPME for their presentation. In the introductory pages, they had focused on the NDP goals, and then moved on to the challenges and what needed to be done. There were areas that had stuck out, like whether the NDP goals were being achieved, such as poverty eradication. The outcomes were lacking. The NDP renewed the medium term strategic framework (MTSF) every five years, but when was it reviewed? In the developed countries, five year plans were revisited before then to ensure strides were being taken effectively. The impact of the funding issues needed more clarification.

Ms S Mchunu (ANC) appreciated the link between the AGSA and DPME reports, such as in the data research systems. What conversations were there between the DPME and the Treasury to achieve increased budgets for the TVET colleges?

Dr Mabogoane said that the private sectors cared about their productivity levels remaining consistent or increasing. So adopting a TVET college needed to be improved to attract the public sector. Spar and Shoprite sought to build relationships with TVETs to ensure students were equipped with viable skills. In terms of the 30 000 artisan goal, that was the end goal, and still remained the goal. However the NDP was split into five year plans, so the 20 000 artisan goal was not reduced but was limited to the five year goal.

Foundation programmes were important as the students that reached universities and TVETs were not ready, so that was why the foundation programmes existed. To reduce inequality one needed a degree or diploma, so the programme helped in giving certificates but from there, the economy had to be sound and grow. Also, if the DHET increased efficiency levels, more students would go through the systems.

The meeting was adjourned.